9/20/2006 @ 11:08AM

What is Trump Worth?

Trump’s relentless bloviating about his developments–”This is going to be the biggest, best, most amazing”–leads many people to assume that he exaggerates his net worth. He’s lately put his fortune at $6 billion. We say it’s $2.9 billion. We’ve never faulted Trump for showing a salesman’s enthusiasm in his estimate; he’s been sporting about our more skeptical one. “So there’s a discrepancy,” he says. But last year, in a book about Trump, New York Times editor Timothy L. O’Brien cited three unnamed “people with direct knowledge of Donald’s finances” who said Trump’s true net worth was $150 million to $250 million–in the vicinity of what his publicly traded stake in his casino company is worth.

Yegads! What about Trump Tower, 40 Wall Street and those huge residential developments in Manhattan, Chicago and Las Vegas? O’Brien didn’t disclose the math that he or his sources used to arrive at their startlingly low figure. Reached by FORBES, he acknowledged that he hadn’t asked New York real estate brokers to value Trump’s commercial buildings.

Trump has sued the author on defamation claims in New Jersey. In August, the judge in the case ruled against O’Brien’s motion to dismiss the lawsuit.

We stand by our estimate. While not based on an audited statement, it’s the result of many hours of research, fact-gathering and consultation with real estate professionals who’ve got nothing to gain from helping Trump inflate his wealth. And we’re happy to disclose our math.

The most valuable piece of the Trump empire by far is his real estate brand-licensing business, run by his two oldest children Don Jr. and Ivanka. In exchange for the use of his name, Trump gets 8% to 15% of other developers’ gross condo sales. He normally puts up no money; he usually gets upfront payments of several million dollars. At the moment there are three dozen such franchised condo buildings under way. The units will carry a total asking price of $10.7 billion.

We assume that Trump’s licensing fee averages 10% and that 25% of the projected sales never materialize. This yields $802 million. Since the money will come in over a period of years, we discount it by 30%, to arrive at $562 million. We subtracted neither taxes on this income, which will presumably be sheltered by depreciation deductions, nor operating costs. (At any one time, Don Jr. has a half-dozen people helping him on the licensing operation.) But neither did we add for the potential from future deals not yet signed, the going concern value of the operation. We think $562 million is a very rough, but very conservative, value for the Trump condo franchise.

Are we too stingy? After all, Trump’s kids are signing up a new development just about every month. (There were almost a dozen new projects in negotiations recently.) And as long as their dad stays famous, they’re likely to keep signing up more. They view this as a going concern that requires very little capital to run. Since it’s a business that virtually can’t lose money, they think investors would value it at a high multiple, like many franchise businesses are on Wall Street.

When Trump says he’s worth $6 billion, he’s attributing billions of dollars in value to the licensing business his children run. We’re more comfortable with our modest figure.

Next there’s the value for Trump’s development on 80 acres of old rail yards on Manhattan’s West Side. He retained a 30% stake in the development when Asian investors acquired a majority stake from him for $85 million in 1994. The Asians then put up $500 million for development costs. Trump contributed no capital, and won an antidilution provision to protect his 30% stake. Trump built rental apartments and condos on the site. We estimate that he will net $170 million from the condos. Last year the Asians sold the rental apartment buildings and the developable land remaining at the site for $1.76 billion. They paid off some debt and poured the rest of the money, via a tax-free exchange, into two office buildings: 1290 Avenue of the Americas in Manhattan and the Bank of America Center in San Francisco. We value Trump’s stake in those two office buildings at their purchase prices, for a combined $486 million.

We value Trump’s 300,000 square feet of office space in the Trump Tower at $318 million. Subtract the $30 million mortgage on the property and the net comes to $288 million.

In the base of Trump Tower sits a cavernous Niketown store. It’s one of the finest retail spaces in Manhattan, producing an estimated (we checked this figure with local retail real estate brokers) $10 million a year in net operating income. Retail condos like this trade at a 5% cap rate (20 times earnings). There’s $80 million in bond debt secured by the property. That accounts for $120 million in Trump’s net worth.

In 1995, Trump bought 40 Wall Street (1.2 million square feet) when it was empty and seriously ailing at a giveaway price of $1 million. He spent tens of millions of dollars on a renovation and successfully leased it to tenants like American Express and Countrywide Insurance. It has a $160 million mortgage on it now. Prices in the Wall Street district have jumped lately, to an average $350 a foot. This nets to $260 million.

Trump has four housing projects–two of them virtually complete and two still under way–that he’s financing himself. We estimate the equity he has accreted in home building by looking at these projects’ profitability.

In Manhattan, he’s not quite finished selling off $400 million worth of condos in the old Delmonico Hotel on Park Avenue. He has poured in $240 million acquiring the hotel, buying out a partner and redeveloping the site. On the $160 million in estimated gross profits, we apply a 30% tax rate. (We’re not privy to Trump’s tax return, but we figure even the cleverest realty moguls eventually exhaust their supply of income-sheltering depreciation.) He is left with ground floor commercial space worth $30 million. Bottom line here is $142 million.

At the Trump World Tower condo development near the United Nations, Trump appears to have $290 million in profits and unrealized appreciation (some apartments are not yet sold). In Chicago, he has (we estimate) put $800 million into a condo and hotel project going up on the spot where the Chicago Sun-Times used to sit. Don Jr. claims to have 80% of the units under “hard contract”–down payments of 15% to 20%–and predicts eventual sales near $1.2 billion. That means that $960 million is under contract. The Trumps will retain ownership of the commercial space in the building and they’ll operate a 25-room condo-hotel in it. We credit Trump the value for the after-tax profits they have under contract–70% of the $160 million left after subtracting the costs–but none for the future condo sales, hotel operations or commercial space. Any profit from the UN project, we assume, has become equity (not otherwise counted) in Chicago or other housing developments.

In Las Vegas, Trump and a 50-50 partner, landowner Philip Ruffin, are 92% done selling $1.1 billion in condos at the north end of the Strip. There’s $500 million in construction and financing cost. (Trump and Ruffin were wise enough to lock down his construction costs before these rocketed in Vegas.) We’ll give Trump credit for half of the after-tax profits under contract thus far. That’s $162 million.

Then there’s Trump’s one-house project in Palm Beach County, Florida. Trump purchased an estate from bankrupt healthcare entrepreneur Abraham Gosman for $43 million. He’s spending a few million renovating the house and aims to sell it for $125 million. That sounds high in this market. We assume that the house’s value is 25% higher than the $70 million that financier Ronald Perelman recently got for his smaller place nearby. With the purchase price and renovations subtracted, Trump has a value of $42 million.

Trump develops golf courses. Citing the $200,000 to $300,000 that people pay for memberships at his courses, he values his four courses at a combined $400 million. We give Trump credit for the initiation fees he’s brought in, but just 25% for those he has yet to sell. And as most buyers do, we value the operations of each course at three times revenues or 10 times operating profits (net before taxes, interest, depreciation and amortization), whichever is the lower figure. Our estimate: only $127 million. Trump’s equity stake in his casino company, if he exercised all his warrants, would be worth $220 million; subtract the $49 million in strike prices and you get $171 million.

His commercial space at the ground floor of the Trump International Hotel & Towers near Central Park is worth $12 million.

Among the items we don’t count: developable land at his Mar-a-Lago estate in Palm Beach, Fla., for which Trump says he’s turned down bids near $200 million but which he probably won’t sell; the $44 million he has earned from his television show, speeches and his books, because he likely has spent most of this money; any of his 213-acre Westchester County, N.Y. estate, which he may or may not subdivide for profit; the hotel operating concern that Don Jr. and Ivanka have laid the groundwork for; or the licensing value of the Trump name on off-beat items like men’s suits, bottled water, vodka and an online travel agency.